solve all these

SECTION A (40 Marks) Answer all the Multiple-Choice Questions in this section 1. Which of the following is not a characteristic of an entity's cash equivalents, as defined by international standard IAS7? a) A short-term investment b) An investment which is subject to significant risk of changes in value c) A highly liquid investment d) An investment which is readily convertible into known amounts of cash 1 mark 2. On an accounting statement of cash flows an "increase(decrease) in cash and cash equivalents" appears as: a) a cash flow from operating activities. a cash flow from investing activities. a cash flow from financing activities. none of the above. 1 mark 3. Activities that result in changes in the size and composition of the equity capital and borrowings of an entity are called: a) Financing activities b) Operating activities c) Investing activities d) None of these 1 mark b) c d) 4. Cash payments to and on behalf of employees is an example of cash flows from a) Financing activities b) Investing activities c) Operating activities d) None of these 1 mark 5. Which of the items below would not appear on a Statement of Cash Flows? a) The Statement of Profit or Loss charge for taxation for the year b) The nominal value of debentures redeemed at par during the year c) The dividends paid to preferred shareholders during the year d) The purchase of long term investments 1 mark 6. Cash inflows and outflows arising from operating activities do not include: Cash receipts from the sale of goods and services Cash payments to employees Cash payments to suppliers for goods and services d) Cash receipts from the sale of property, plant and equipment a) b) c) 1 mark 7. Which of the following is a cash inflow or outflow arising from investing activities? a Cash received from the repayment of loans made to other parties b) Royalties received c) Cash repaid to lenders d) Cash received on the issue of loan stock 1 mark 8. Which of the following is not a cash inflow or outflow arising from financing activities? a) Cash payments to acquire equity of other entities b) Cash proceeds of a share issue c) Cash proceeds from issuing debentures d) Cash repayments of amounts borrowed 1 mark 9. If cash flows from operating activities are reported using the direct method, the statement of cash flows does not show: a) Cash received from customers b) Cash paid to suppliers c) Cash paid to employees d) Depreciation charges 1 mark 10. The sale of an investment which ranks as a cash equivalent is treated as a cash inflow from investing activities. True or False? a) True b) False 1 mark 11. Which of the following items could appear in a company's Statement of Cash Flows? (1) Surplus on revaluation of non-current assets (2) Proposed dividends (3) Proceeds of issue of shares (4) Dividends received a) 1 and 2 b) 3 and 4 c) 1 and 3 d) 2 and 4 2 marks 12. Which of the following statements are correct? (1) A Statement of Cash Flows prepared using the direct method produces a different figure for operating cash flow from that produced if the indirect method is used (2) Rights issues of shares do not feature in Statements of Cash Flows. (3) A surplus on revaluation of a non-current asset will not appear as an item in a Statement of Cash Flows. (4) A profit on the sale of a non-current asset will appear as an item under Cash Flows from Investing Activities in a statement of Cash Flows. a) 3 only b) 1 and 4 c) 2 and 4 d) 2 and 3 2 marks 13.A company uses the indirect method for reporting cash flows from operating activities. During an accounting period, inventories have risen by 15,000, trade receivables have fallen by 12,000 and trade payables have risen by 9,000 When calculating the net cash inflow or outflow from operating activities, the required adjustments are as follows: a) Subtract 15,000, Add 12,000, Subtract 9,000 b) Subtract 15,000, Add 12,000, Add 9,000 c) Add 15,000, Subtract 12,000, Add 9,000 d) Add 15,000, Subtract 12,000, Subtract 9,000 3 marks 14. A company uses the indirect method for reporting cash flows from operating activities. During an accounting period, plant which had cost 60,000 some years ago was sold for 6,000. The accumulated depreciation on this plant at the time of disposal was 50,000. The effects of this transaction on the statement of cash flows are as follows: a) Operating activities: Subtract loss on disposal 4,000 Investing activities: Cash received on disposal of plant 6,000 b) Operating activities: Add back loss on disposal 4,000 Investing activities: Cash received on disposal of plant 6,000 c) Operating activities: Add disposal proceeds 6,000 Investing activities: Subtract loss on disposal of plant 4,000 d) Operating activities: Subtract disposal proceeds 6,000 Investing activities: Add back loss on disposal 4,000 3 marks 15. The carrying amount of a company's property, plant and equipment was 148,000 at the beginning of an accounting year and 167,000 at the end of the year. The depreciation charge for the year was 20,000. Plant with a carrying amount of 5,000 was sold during the year for 2,000 and a property was revalued upwards by 10,000. The cash outflow caused by the acquisition of property, plant and equipment during the year was: a) 44,000 b) 34,000 c) 31,000 d) 41,000 4 marks 16. The current tax liability shown in a company's statement of financial position at 31 December 2019 is 588,000. The comparative figure at 31 December 2018 was 532,500. The tax expense shown in the statement of comprehensive income for the year to 31 December 2019 is 615,000. A transfer of 7,500 was made to the deferred tax account during the year. The amount of tax paid during the year to 31 December 2019 was: a) 559,500 b) 567,000 c) 663,000 d) 552,000 4 marks 17. Extract from the statements of financial position for Moorgate plc for 2019 and 2018 are as follows: 2019 2018 000 000 Current liabilities Dividends payable 9,200 7,600 On 15 August, 2019 Moorgate plc paid an interim dividend in respect of the year to December 2019 amounting to 5,800 What amount will appear as dividends paid in the Moorgate plc statement of cash flows for the year ended 31 December, 2019? a) 13,400 b) 15,000 c) 7.400 d) 5,800 4 marks 18. The statements of financial position for Euston plc for 2019 and 2018 showed the following extracts: 2019 000 2018 000 Non-current liabilities Deferred tax 690 585 Current liabilities Current tax 120 180 The charge for taxation in Euston plc's statement of profit or loss for the year ended 31 August, 2019 was 570,000. How much tax was paid in the year ended 31 August, 2019 by Euston plc? a) 285,000 b) 735,000 c) 510,000 d) 525,000 4 marks 19. Part of a company's Statement of Cash Flows is shown below: Operating profit 43,200 Depreciation charges (10,800) Increase in inventory (1,650) Increase in accounts payable 2,200 The following criticisms of the extract have been made: (1) Increase in inventory should have been added, not deducted, (2) Depreciation charges should have been added, not deducted. (3) Increase in accounts payable should have been deducted, not added. Which of the criticisms are valid? a) 1 only b) 1 and 3 only c) 2 only d) 2 and 3 only 4 marks SECTION B (60 Marks) Answer any Three questions only Question 1 (a) Define the term "intangible asset and explain the main features of this definition. (3 marks) (b) Explain how an intangible asset should be measured at its initial recognition if it is acquired in a separate transaction. (2 marks) (c) The following information relates to three companies that use the revaluation model in relation to intangible assets and prepare annual financial statements to 31 December 0 Newbury Ltd acquired an intangible asset for 375,000 on 31 December 2018. This asset was revalued at 337,500 on 31 December 2019 and at 405,000 on 31 December 2020. (H) Woodford Ltd disposed of an intangible asset on 31 December 2020. This asset had been acquired some years previously at a cost of 150,000 and had a carrying amount of 240,000 on the date of disposal. Disposal proceeds were 292,500. () Epping Ltd acquired an intangible asset for 120,000 on 31 December 2018, This asset was revalued at 135,000 on 31 December 2019 and at 97,500 on 31 December 2020. Discuss the circumstances in which the revaluation model may be used (in accordance with the requirements of IAS38) and explain how each of the above matters should be dealt with in the financial statements of the company concerned. (15 marks) (Total: 20 marks) Question 2 Whilst preparing its financial statements for the year to 30 June 2020, Wissington Ltd discovers that owing to an accounting error) the sales figure for the year to 30 June 2019 had been understated by 150,000. Trade receivables had been understated by the same amount. This error is regarded as material. An extract from the Wissington Ltd's draft statement of comprehensive income for the year to 30 June 2020, before correcting this error, is as follows: Sales Cost of goods sold Gross Profit Expenses Profit before taxation Tax Profit after taxation 2020 '000 2,490 (1.005) 1,485 (885) 600 (120) 480 2019 '000 2.610 (1,095) 1,515 (840) 675 (135) 540 The additional trade receivables of 150,000 are still outstanding at 30 June 2020. The sales figure for the year to 30 June 2020 shows only the sales revenue for that year and does not include the sales of 150,000 which were omitted from the previous year's financial statements. Retained earnings at 30 June 2019 were originally reported as 1,830,000. No dividends were paid during the two years to 30 June 2020. It may be assumed that the Wissington Ltd's tax expense is always equal to 20% of the profit before taxation. Required: (a) Explain how an entity should select its accounting policy in relation to an item if there is no applicable international standard or FRIC interpretation? (4 marks) (b) In what circumstances may an entity change one of its accounting policies? (3 marks) (c) Revise the extract from the statement of comprehensive income for the year to 30 June 2020. showing restated comparative figures for the year to 30 June 2019 (8 marks) (d) Prepare an extract from the Wissington Ltd's statement of changes in equity for the year to 30 June 2020, showing changes to retained earnings. (5 marks) (Total: 20 marks) Question 4 On 1 January 2019, Canwick Ltd (which prepares accounts to 31 December) enters into a four-year lease of office machinery. The company is required to make four lease payments of 45,000 and these fall due on 1 January 2019, 2020, 2021 and 2022. The rate of interest implicit in the lease is 9% per annum. Required: (a) Define the term "right-of-use asset". Explain how a right-of-use asset and a lease liability are measured at the commencement of a lease (6 marks) (b) Explain how this lease should be accounted for by Canwick Ltd in accordance with the requirements of IFRS16 Leases. (14 marks) (20 marks) Question 5 Euston Ltd has inventory on hand at 31 December 2019 as follows: Units Raw material cost Attributable production overheads Attributable selling costs Expected selling Product x Product Y 300 250 240 75 23 15 18 15 278 113 The company complies with IAS2 Inventories. Required: (a) Define the term "inventories". (3 marks) (b) Explain how the cost of inventories should be determined. (4 marks) (c) Define the term "net realisable value". (2 marks) (d) Explain how inventories should be measured in accordance with IAS2. (3 marks) (e) At what amount will inventories be stated in Euston's statement of financial position for the year ended 31 December 2019 in accordance with IAS2 Inventories (8 marks) (Total: 20 marks)